Tax Evaders Beware! Money's Getting Harder To Hide

The U.S. government has been working for years to crack down on Americans dodging taxes overseas. In 2009, under intense pressure, the Swiss bank UBS released the names of its American customers.

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Originally published on August 9, 2012 10:51 am

Republican presidential candidate Mitt Romney has acknowledged that he had money in a Swiss bank account until 2010. Romney says he wasn't trying to hide the money, since he reported the account to the government.

Even so, he closed the account at a time when the federal government was in the middle of a major crackdown on offshore tax havens — a crackdown that has made it harder for Americans to hide their money overseas.

The amount of money stashed in offshore tax havens is staggering. A recent report from The Tax Justice Network estimates it's as much as $31 trillion worldwide — and that's just an educated guess.

After all, tax havens are, by their very nature, secretive.

"First of all, you don't have an offshore bank account in your own name," says Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice. American companies and individuals can hide their money by opening an account in the name of a foreign corporation, she says, making it virtually impossible for the Internal Revenue Service to find it.

"The tax havens have a history of non-cooperation with the IRS," Wilkins says. "And even if the IRS got wind of some Panama corporation, they would go to the Panamanian government and ask, 'Who owns this?' And they would get no information in return."

Finding Evaders, And Those Who Help Them

But the tide has been slowly turning in recent years. In 2007, the U.S. government received a tip that the Swiss bank UBS was helping people evade taxes. After extended negotiations, the bank ultimately had to release the names of its American customers.

The U.S. government also offered amnesty to taxpayers with unreported offshore accounts, allowing such account holders to avoid criminal prosecution by paying back taxes and a penalty. About 33,000 people have participated in the program thus far.

"I'm still getting calls from people [who want] to get involved in this program, because I think they realize the gig is up," says tax attorney Jeff Kolodny.

Many of those who have come forward defy stereotypes about the kind of person who might hold a Swiss account.

Daniel Shaviro, a tax law professor at New York University School of Law, says very rich Americans tend not to keep their money in Swiss banks. Instead, he says, they can find legal ways to avoid paying taxes.

"The people who were doing this were economically several levels below Romney," Shaviro says. "Kind of affluent people, with their own businesses, say. Cash businesses, things like that."

And as these people have stepped forward, the IRS has leveraged their cooperation to go after other people involved in hiding illicit accounts, says Citizens for Tax Justice's Rebecca Wilkins.

"So when somebody comes in and tells the IRS, 'Here's my Swiss bank account,' the IRS doesn't stop there," she says. "They ask the person, 'Who's the accountant who helped you?' Or, 'Who's the accountant who drew up the document?' "

The IRS then goes to the account holder's tax adviser or attorney and demands that that person turn over the names of his or her other customers. The U.S. has also been working with European and Japanese regulators, who have launched crackdowns of their own.

Overseas, More Banks Turn Americans Away

The federal government went even further in 2010, when Congress passed the Foreign Account Tax Compliance Act, imposing taxes on overseas banks that won't name their American customers. This has extended the U.S. crackdown beyond Switzerland to tax havens in the Caribbean and Asia.

As a result, attorney Jeff Kolodny says, many overseas banks are now unwilling to accept any more American customers.

"I don't think you can get the same level of privacy and protection anymore from the Swiss accounts," Kolodny says. "And this is true worldwide, really. I think the days of bank secrecy are over."

The U.S. government's efforts at cracking down have had other benefits, as well. The amnesty program has brought in approximately $5 billion in back taxes and penalties.

That's only a small fraction of the money estimated to be in offshore accounts, of course. And there's still a vast network of financial advisers and tax attorneys around the world ready to help people who want to hide their money. Even so, the current crackdown has at least pierced the veil of secrecy that once surrounded many overseas banks — and the money Americans keep there.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

AUDIE CORNISH, HOST:

Mitt Romney has acknowledged that until 2010 he kept money in a Swiss bank account. Romney says he wasn't trying to hide the money and that he reported it to the government. He closed the account at a time when the federal government was in the middle of a major crackdown on offshore tax havens.

As NPR's Jim Zarroli reports, that crackdown has made it harder for Americans to hide their money overseas.

JIM ZARROLI, BYLINE: The amount of money hidden in offshore tax havens is staggering. The Tax Justice Network recently put it at as much as $31 trillion worldwide, but that's just an educated guess. By their very nature, tax havens are secretive.

REBECCA WILKINS: First of all, you don't have an offshore bank account in your own name.

ZARROLI: Rebecca Wilkins, of Citizens for Tax Justice, says American companies and individuals can hide their money by opening an account in the name of a foreign corporation and it's virtually impossible for the Internal Revenue Service to find it.

WILKINS: The tax havens have a history of non-cooperation with the IRS. And even if the IRS got wind of some Panama corporation, you know, they would go to the Panamanian government and ask, who owns this? And they would get no information in return.

ZARROLI: But in recent years, the tide has been slowly turning. In 2007, the federal government received a tip that the Swiss bank UBS was helping people evade taxes. The bank ultimately had to release the names of its American customers.

The government also offered amnesty to taxpayers with unreported accounts. They could avoid criminal prosecution by paying back taxes and a penalty. About 33,000 people have participated in the program.

Jeff Kolodny is a tax attorney.

JEFF KOLODNY: I'm still getting calls from people to get involved in this program, because I think they realize now that the gig is up.

ZARROLI: Many of those who have come forward defy stereotypes. Daniel Shaviro, of NYU law school, says really rich Americans don't tend to keep their money in Swiss banks. He says they can usually find legal ways to avoid taxes.

DANIEL SHAVIRO: The people who were doing this were not - were economically a level or several levels below Romney. This is not poor people doing it but kind of affluent people with their own businesses, say, cash businesses, things like that.

ZARROLI: As these people have stepped forward, the IRS has leveraged their cooperation to go after other people, says Rebecca Wilkins of Citizens for Tax Justice.

WILKINS: So when somebody comes in and tells the IRS, here's my Swiss bank account, the IRS doesn't stop there. They ask the taxpayer, well, who's the accountant that helped you? Or, who's the attorney that drew up the documents?

ZARROLI: The IRS then goes to the person's tax adviser or attorney and demands they turn over the names of other customers. The U.S. has been working with European and Japanese regulators, who have launched crackdowns of their own.

Then in 2010, Congress passed the Foreign Account Tax Compliance Act, imposing taxes on overseas banks that won't name their American customers. This has extended the crackdown beyond Switzerland to tax havens in the Caribbean and Asia.

Attorney Jeff Kolodny says, as a result, a lot of overseas banks won't accept any more American customers.

KOLODNY: I don't think you can get the same level of privacy and protection anymore from the Swiss accounts. And this is true worldwide, really. I think the days of bank secrecy are over.

ZARROLI: U.S. efforts have had other benefits, as well. The amnesty program has brought in about $5 billion in back taxes and penalties.

That's just a small fraction of the money estimated to be in offshore accounts. And there's still a vast network of financial advisers and tax attorneys around the world ready to help people who want to hide their money. Still, the current crackdown has at least pierced the veil of secrecy that once surrounded many overseas banks.

Jim Zarroli, NPR News.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright National Public Radio.